May 31, 2019

Why Our Housing Problems Don't Obey the Laws of Physics

24 minutes

Imagine you’re a renter who’s struggling to pay your landlord. You scrimp and save and beg every person you know to borrow a little money, but it’s just not coming together, and the first of the month is looming. Do you:

a) call your property manager and plead for forgiveness, or at least a payment arrangement?

b) do whatever it takes to get a second job as soon as possible, pay the late fees, and make sure it never happens again?

c) call up your local 1940s-style mobster/hyper-predatory payday lender/devil-at-the-crossroads?

Or, do you go with option D:

d) get a 0% interest 6-month loan from your local bank and call it a day?

A recent article from Two Cents makes the case that (d) is becoming an option for more and more Americans, with banks offering no-money down lending products specifically for cash-strapped renters. And it’s not just for apartment dwellers: even commercial and corporate renters are being offered 12 months of interest free loans to get on their feet in a new space, with a 15-17% interest rate kicking in at the end of the promotional period. That deal beats a lot of credit cards out there, in an industry that, one generation ago, required owners to pay 50% down payments, and offered annual mortgage rates of 16.63% even more recently than that.

So how does a Strong Towns advocate greet this news? Are increasingly-normalized rental loans from traditional banks a great incremental step to give small players a toehold in big markets, and a much better alternative to borrowing from shady characters who will break your kneecaps if you don’t pay? Or are they yet another distortion in a housing market that, increasingly, doesn’t obey the laws of gravity—and when will physics finally catch up?

On this episode of Upzoned, Chuck and Kea talk about the surprising reasons why they’re not so sure about the potential rise of the rental loan—and what it indicates about the resilience of the larger housing market. (Spoiler alert: it’s not because either of them are anti-debt.) Then in the Downzone, they talk about their recent reads, from a history of a presidential impeachment (no, not that one) to a fascinating cultural examination of what it takes to do nothing in an age where our technology, our economy, and our political process are all warring for your attention 24/7.

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